## Introductory Macroeconomics

Following up from our introduction to economics/macroeconomics article, this post talks about ‘self-interest’ and maximizing over a set of preferences subject to constraints.

Let’s start off with some examples, but first, the tools we’ll need (some images used because it’s a bit tough to get the right characters).

**Consumption Bundle (CB)**:

**Preference Ordering:** Will use statements to rank bundles from least to most. It is possible to construct if: 1. You are always able to make such a statement, 2. Statements are consistent.

Let’s explore some of these ordering assumptions.

**A1 – “Completeness” Assumption**: Given any two CB’s, one of them is true.

**A2 – “Consistency or Transivity” Assumption**: Given any 3 CBs:

A1 and A2 are CORE assumptions about preferences or *rational decision markers*.

Taken together they guarantee an individual can consistently rank any set of CB. (They have complete preference ordering.)

**A3 – “Non-satiation” Assumption:** If some is good, more is better.

**A4 – “Maximization” Assumption:** Individuals always make choices that maximize their preference ordering.

The implications of A3 and A4 are:

1. Scarcity, you always want more than what’s available.

2. People always fully exploit opportunities (all gains from trade are exhausted in equilibrium).

3. Imposes argument to explain behaviour.

In part two, a bit on trade offs and more assumptions.

[tags]consumption bundle, consumer, assumptions[/tags]

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